How Web 3.0 needs Payments 3.0

Old payment systems can’t power a new internet. We examine why Web 3.0 needs Payments 3.0.

Web 3.0 promises a better, more decentralized internet with countless interoperable platforms. A group of technologies, including digital assets, decentralized finance (DeFi), blockchains, tokens and smart contracts will enable new forms of collaboration. But what about money?

Today’s financial rails, designed for a centralized Web 2.0 world, struggle to support the needs of always-on, global, permissionless systems. If Web 3.0 is to fulfil its potential, it needs a new generation of payments: Payments 3.0.

In this article we consider:

What is Web 3.0?

How did we get to Web 3.0?

What technologies support Web 3.0?

What concepts does Web 3.0 enable?

What are the limitations of Payments 2.0?

How will Payments 3.0 solve this?

How do we get to Payments 3.0?

What is Web 3.0?

Web 3.0 is the next version of the internet, a decentralized, blockchain-based web of interoperable platforms.

With no centralized authority, Web 3.0 could potentially be the truly egalitarian, participatory internet originally envisaged by its inventors.

With new models for identity, data and ownership, Web 3.0 could mean improved access for unbanked individuals and underserved businesses. Plus, better, cheaper and faster cross-border payments for all.

We may be witnessing a generational shift for the internet as big as the emergence of social, mobile and cloud in the 2010s.

How did we get to Web 3.0?

The progression of Web 1.0 through Web 2.0 to Web 3.0 could best be summarized as read, write, own.

Web 1.0 emerged in the 1990s and consisted of static web pages read by users, searchable digital information and basic e-commerce.

Web 2.0 began in the mid-2000s and continues to the present day. Instead of consuming read-only content, users now write and create their own in chatrooms and websites and social media.

Advances in technology, such as the proliferation of mobile devices, faster broadband, 4G and 5G rollouts, cloud and APIs, have improved the connectivity, speed and reach of the internet.

Large-scale search, shopping and entertainment platforms have emerged. Think: Google (Alphabet), Amazon and Facebook (Meta). These private companies have built successful business models around tracking and monetizing user data in exchange for providing seemingly ‘free’ services.

Web 3.0 promises a more decentralized internet with countless interoperable platforms. Users will be able to generate and keep more value for themselves. They’ll also retain privacy or at least the right to own, withhold or sell their data themselves.

What technologies support Web 3.0?

Web 3.0 is supported by a combination of technologies. We examine the three main ones: blockchain, digital assets and tokens and smart contracts.

Blockchain        

A blockchain is a like a crowd-sourced, public ledger on the internet. Transfers of value between participants are noted and added to a chain of previous transactions. Imagine it as blocks of lego, building on to one another at a rate of a new block every ten minutes.

As blockchain relies on a peer-to-peer network of computers, there’s no single point of control or failure. As all transactions are recorded on a public ledger, coins cannot be duplicated, falsified or spent more than once.

Digital assets and tokens

These are items of value that exist in digital form only. They may include cryptocurrencies, stablecoins, central bank digital currencies (CBDC) and non-fungible tokens (NFTs). They may also include tokenized version of physical assets, such as art or tickets to concerts or sporting events.

Smart contracts

Smart contracts are software programs that execute automatically when certain criteria are met. What makes them ‘smart’ is that the terms are established and implemented as code running on a blockchain, rather than on paper. This makes it possible to securely automate and decentralize any type of deal or transaction.

What concepts does Web 3.0 enable?

Web 3.0 enables a great many new concepts as well as re-imagines existing ones. From a financial services perspective, the most important ones are decentralized finance and stablecoins.

Decentralized finance (DeFi)

Commonly abbreviated to DeFi, these financial products and services do not rely on trusted intermediaries and are often built using blockchain and smart contracts. Thanks to leaner processes and lower operational costs, consumers and businesses can benefit from better rates and smarter, more tailored solutions.

Stablecoins

Stablecoins are crypto assets pegged to fiat currency or a commodity, giving them a relatively stable price. They act as a type of bridge between the traditional finance and DeFi worlds, allowing people to more easily convert fiat money into cryptocurrency and between different cryptocurrencies and exchanges without having to convert them back into fiat money each time.

What are the limitations of Payments 2.0?

Payments have progressed from the escrow-based systems of Web 1.0 to the centralized systems of Web 2.0. But funds transfer may still be slow – anything up to 3-5 days. Depending on the commercial framework, it may also be costly.

What’s more, until crypto goes mainstream, there’ll always be a double conversion. Fiat is converted into crypto. It’s spent, saved or invested, before being converted back into fiat again.

Right now, this process doesn’t work well. It’s slow, complex and not particularly cost-effective. That’s if it works at all. Some banks and card companies block crypto payments altogether. Usually due to concerns about risk, red tape and reputation.

That’s a problem for an industry with a market capitalization of $3 trillion. It’s a problem for crypto exchanges, wallets, swap providers, who want to scale. And it’s a problem for 650 million crypto users worldwide.

They want to shop, trade or play, often across national borders, no matter the currency. Yet the experience is slow, clunky and off-putting. Payments 2.0 don’t make crypto accessible or improve take-up. And so the vicious circle continues.

How will Payments 3.0 solve this?

Web 3.0 needs Payments 3.0. These are payments that offer more speed, convenience, value and choice to payers and payees.

They are likely decentralized, blockchain-based systems, which execute globally, quickly and cheaply. And may include programmable smart contracts to expand value beyond the transfer of funds.

Supported by new models for identity, data and ownership, Payments 3.0 promises increased efficiency, innovation and financial inclusion for those who make, receive and facilitate payments.

How do we get to Payments 3.0?

We’ve not quite reached Web 3.0 or Payments 3.0 yet.

In the meantime, businesses that accept crypto pay-ins are looking for a way to pay out, without going through traditional banks and systems. Ultimately, they want funds to end up in a bank account, though. They need a bridge between Web 2.0 and Web 3.0, between Payments 2.0 and Payments 3.0.

Payment services providers (PSPs) like Inpay may be the answer. They are the conduits contributing to the smooth flow of funds between traditional and newer institutions. For example, when clients send a transaction to Inpay, it’s not going directly to a bank, rather to a PSP with an electronic money institution license.